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New Signs That the Glorious Era of ETFs is on Shaky Ground

"There comes a time when every financial innovation is taken a bit too far."

by Bob Stokes
Updated: May 08, 2017

There's an exchange-traded fund for almost every investment niche. Our analysts view the proliferation of ETFs as part of the entire derivatives boom. Here's how we believe ETFs will go down in history.

 

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[Editor's Note: The text version of the story is below.]

The number of exchange-traded funds has exploded since their 1993 inception.

As of June 28, 2016, there were 1,929 ETFs, according to Vanguard. Their number has risen since then.

CNBC has quipped:

There's an ETF for that. ... Exchange-traded funds are expanding their quest to take over the investing world.

In 2016, the market cap of ETFs exceeded $3 trillion, according to the Economist. That's up from $715 billion in 2008.

Our September 2016 Elliott Wave Financial Forecast showed this chart and warned:

An Exponential Rise

Yes, the proliferation of ETFs is so pronounced that there's now even an ETF for ETFs (The Economist, April 27):

There comes a time when every financial innovation is taken a bit too far. ... The new fund (with the catchy title of the ETF Industry Exposure and Financial Services ETF) is just the latest example of the industry's drive to specialisation.

Other new offerings are for investors who have an "iron stomach" (Reuters, May 2):

The Securities and Exchange Commission on May 2 approved a request to trade quadruple-leveraged exchange-traded funds, marking a first for the growing market for such products in the United States.

Our analysts believe that the popularity of ETFs "signals the culmination of the entire derivatives boom."

Returning to the Elliott Wave Financial Forecast:

In the next bear market, ETFs will go down in history as one of the greatest financial traps ever conceived.

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